♪♪[THEME MUSIC]♪♪
MICHAEL STOLER: Everybody is
looking to buy real estate
today. People are very
interested in it.
But you know
there's banks,
then I was talking a
couple weeks ago on my
show about crowdfunding,
EB-5's and then there's
what we would call a
specialty lenders,
people who could do
short term lending, unique type
of lending and a variety of
other types of financing.
So today I've assembled a group
of specialty lenders
to provide their insight
on the markets today.
We have Thanh Bui who is
the managing director and
one of the partners
at Clarion Partners.
Gregg Winter who is the
co-founder and C.E.O.
of the W Financial Fund. Ronnie
Levine who's the senior
managing director at
Meridian Capital.
Josh Zegen who is the
co-founder and managing
member at Madison Realty Capital
and last but not least Mark
Mendelsohn who's the co-founder
at the Bluestone Group.
So what would you call
yourself, a mezz lender or?
THANH BUI: We do
primarily mezz lending.
MICHAEL STOLER:
And for my audience,
explain what mezz is,
you know because we don't
like, we like inside
baseball to be brought up.
THANH BUI: Sure, it's the
subordinate piece or the
piece right behind
the senior loan,
so we're sandwiched in
between the senior loan and the
equities, ending at about say
eighty percent loan to value
MICHAEL STOLER: And what type
of assets in the real estate
world do you like? You know, is
there five core assets?
THANH BUI: We like cash paying
assets, any and all but mostly
office, retail,
multifamily, industrial, hotels.
MICHAEL STOLER: Now you
bring up an interesting
subject, you like
cash paying assets.
So we're talking about
real estate that's in
business, no transition
as opposed to you,
you do a
variety of things,
both of you do
non-cash assets what's,
what's your favorite,
today you're favorite type
of asset to finance?
JOSH ZEGEN: I mean we
finance multi-office,
retail, industrial and
hotel but I would say
probably about forty to
fifty percent of what we
do has a multifamily
component to it,
but you know we're a
special situation lender
in general, typically
focused on the middle
market and our average
deal size is between I'd
say ten and
fifteen million dollars.
So that's been an area
that we focused on which
is I would say larger
than the family office but
lower than some
of the big (IND).
MICHAEL STOLER: But we were
saying over here from Clarion.
They want cash flow, they
want to make sure that
there's cash being paid,
you from what I'm hearing
you can accrue, you know.
JOSH ZEGEN: We're a basis
driven investor so that's
really the most important
thing from our standpoint,
we typically like to be
about 65% of underlying
real estate value and
we're also an owner and
developer so we really
understand it from the
underlying real
estate side and we're not
constrained by debt
service coverage or things
like that, it's really a
price point where do we
want to be on a
specific asset.
MICHAEL STOLER: And
Marc what would you say,
how would you categorize
yourself on the Bluestone
Capital which is more,
as opposed to the (IND).
MARC MENDELSOHN: We're
more in the one to ten
range on the loans, it
gives us a little bit of
an advantage because it's
not just people who need
short term or other
situations that a lot of
lenders who just don't
do loans that small and
complicates a lot of
things for a lot of
people, you
know borrowers,
so we'll do those loans
and we're really New York
based you know New York
City based even I would
say, we'll do any asset type
literally in New York City
because that's. You know we're
also you know owners and
developers so we really
understand the value and will
lend based on value, that
service really is not an
issue for us we can either
create an interest reserve
that will cover the loan
upfront or we'll accrue.
You know we have no issue
with the accruing payments
and back ending
the entire pay off.
MICHAEL STOLER: Gregg?
GREGG WINTER: W Financial
is purely a lender.
We're not also owners at this
point of the real estate and
I would say we're involved
in the value creation stage.
Guys who are buying mostly
mixed use and multifamily
buildings where there's
going to be a value add
that occurs rapidly after.
MICHAEL STOLER: You know
this is a big discussion
that everyone always
brings out and you know
anyone who wants to bring it up
and answer would be the key.
What do we consider a value
add and how do we value add,
because you're making loans to
make these properties value
added. What for my viewers
what is value add?
JOSH ZEGEN: It's really
creating additional value
through, whether
it's tenant buyouts,
whether it's releasing,
whether it's construction,
whether it's you know
air right purchases,
there's always some
additional value created
in the business plan which
is really you know in many
ways you're banking on
the operator to execute.
In a lot of
deals that we do,
we don't typically you
know we're lending on an
as is basis and then
there's the value add
component where we're
traditionally giving good
news money on, so we
really look at it from an
as is, in an as sort of
stabilized kind of basis.
MICHAEL STOLER: I mean
many people come directly
to Josh or you know or to
Gregg or to Marc but in
many instances the
customer comes to you and
says where should I go. How do
you make the determination
of whose the value add?
How do you make the
determination if you
should go to Clarion or another
mezz lender in your position?
RONNIE LEVINE: Sure I
mean we close loans with
probably well over a
hundred lenders in any
given year so you know
we have a you know a very
good understanding of
who's looking to do what
and what the
proper fit would be.
I mean we would look
at the transaction and
determine first of all
what's the timing how
quickly does it
need to close,
you know how much equity
does the sponsor have
available to put
into the project,
are they looking
to leverage 60%, 70%, 80%.
So really you know the
first thing we do is try
to understand the business
plan and the needs of the
client and then you
know we know the right,
we know the right fit generally
for what they're looking for
so I think the key is really
understand their needs and
then marry them up with the
proper source of capital.
MICHAEL STOLER: You
know you raise your money
through
institutional investors.
Josh raises his money
through institutional.
Greg raises his money more
from family offices and
high net worth
individuals.
And you raise your money
through individuals high
net worth situations. When
you're doing a loan how do you,
you know you're, the
important situation of the
transaction is the
timing, to get it done.
You know
that's why people,
you know to go to a bank
you have a certain time
period that takes and
you know it's a different case.
How fast can you turn over
a loan in case somebody
has a good piece of property
or something over there?
JOSH ZEGEN: Well you know
if it's something in the
New York metro area
typically And we've done
literally billions of
dollars of deals in this
area, so we typically know
the market so well that it
could be as soon as a few
days but you know that's
not the average the
average is typically I
would say two
to three weeks.
MICHAEL STOLER: Gregg?
GREGG WINTER: I would say
you know my partner David
(IND) and our senior loan
officer Gerard (SP) (IND)
really specialize in that,
in the New York type of
phenomenon where contracts
are time of the essence,
there are very short
closing time frames,
especially if you're going
to be able to negotiate
favorable terms
on a purchase.
David just sent out an
e-mail today regarding a
seventeen million dollar
loan that we closed in
literally less than two
days from the time the
term sheet was signed, it
was a development site in
Flushing being purchased
for fifty three million
dollars so there was
plenty of actual equity
going into the deal and
they had spoken to the borrower.
MICHAEL STOLER: When I
hear something like that I
mean it's great that
one can turn over a
transaction in a period of
time but there are always
moving parts you know
there are title insurance
questions, there's
environmental situations
that could be
around there.
How do you, all of you, how do
you get comfort that something
doesn't show up that could blow
up that transaction?
GREGG WINTER: We did a lot
quickly, I mean on that point.
THANH BUI: We, because our
capital is institution in
our investment structures
and strategies are very
institutional, we always
hire third parties and
those third parties can
take two to three weeks on
average really a deal
closes anywhere between
thirty to forty five days
if it's under contract by
the borrower and such.
And so, also as a mezz
lender we also do value
added
transactions as well.
And those take a little
bit longer because you
really have to investigate
the business plan of the
borrower and make sure
that it works and such and
so on average we can do
this as quickly as thirty
days but again waiting
for third parties and such
that takes a little
bit of time as well. Clarion is
an owner and operator of eleven
hundred properties nationally.
So if there is a property
that we have lost for example
because we are
bidding it as well but it
went another direction
and we're lending on that
property, we probably have
a lot more insight into
that asset just because we
ran it through the process
as an equity owner and
potential purchaser,
that cuts down on the due
diligence time as well.
RONNIE LEVINE: I'll also
say Michael, normally if you're
closing a loan in two days
something happened.
THANH BUI: Right.
RONNIE LEVINE: Meaning that
there was probably another loan
that fell out. So normally what
happens, and we've closed
several loans with W literally
in less than a week so that's
not an aberration. I mean I
don't think that they're looking
to advertise we close in three
days but we've done several.
But normally what happens
is a lender fell out of bed,
so you're inheriting
the third party reports
you're usually coming
to them with you know an
engineering, environmental
report that was done for
previous lender, there may
be an appraisal that can
be leveraged so
they're getting,
you know they're not
starting from a blank
piece of paper and
closing in two days.
Cause if you think
about it there would be no
reason to close a
loan in two days,
I mean any, even in New
York the fast paced people
go hard and they got to
close in thirty days,
I mean so there's normally
a little bit more runway.
So if you're closing in
two days it's generally a
situation where something
else fell out of bed.
MICHAEL STOLER: How do
people find out about the
world of specialty lending?
You know we were talking in the,
in the crowdfunding show
that there are probably a
hundred crowdfunding
companies who have just
been created and they're
all relatively less than
two years old and some
of them you know they're
advertising or somebody
you Google the company and
says short term interim
lenders or something like
that I mean is
their advertising,
is it do you do Google
ads, do you have social media?
I mean how important is
that phenomenon which is
very important in the
crowd funding mechanism
have an effect on your
type of business today?
JOSH ZEGEN: Well I think
you know when we first started
ten years ago it's a huge you
know component to it, a lot of
advertising, after being in
business for ten years a lot of
it is the fact that we
provide the certainty of
execution for
so many years.
People know, know about
you know who we are they
know where to find us
for this type of deal.
But we do do a lot of marketing,
advertising, brokers, attorneys,
you know direct borrowers,
direct developers,
a lot of repeat transactions
with specific borrowers as well.
MICHAEL STOLER: Marc?
MARC MENDELSOHN: We're
mostly referral based,
a lot of the attorneys
that we deal with in all
different aspects bring
us a lot of those deals,
brokers, you know people
in general in will know us
in the industry that we do the
lending, they'll come to us
directly. You know we haven't
done much if any advertising.
GREGG WINTER: Our fund is
almost twelve years old so
like Josh is saying there's
a lot of repeat business.
There's a lot of word
of mouth from attorneys
accountants, of course
developers, owners. The word
gets out that you can execute
and there is certainty of
execution. I think that's the
most important thing.
THANH BUI: Yeah I
would echo that,
Clarion Partners has
been around for thirty two
years and my business
partner (IND) and I have
been in mezz space for
16-17 years so there's a
lot of experience and
surety of execution and so
the broker community knows that
as well as the buying community.
MICHAEL STOLER: One of
the things besides the
crowdfunding that I
brought up you know today
we have the
mortgage REITs,
who are out there
you know you know,
the Starwood, the Annaly,
you know and others.
How active are these publicly
held companies who you know
have, they have to answer to the
stock, to the S.E.C. are they
active in the specialty interim
quick lending business running?
RONNIE LEVINE: They're
very active I mean you've
got, you know North Stars
of the world and there's a
lot of, there's a lot of
finance companies that
we'll call them, some of
them REIT structure some
of the more you know
finance company structure
but you know generally
what's differentiating I
think the crew here is
how low they'll go down,
how small they'll
go on loan size.
A lot of the lenders that
you're talking about Star
Woods of the world and
North Star and Annaly,
they're not looking at
generally loans less than
twenty million dollars
and they usually are not
closing in the timeframes, I
mean they're probably more in
the in the thirty day, they need
thirty days generally speaking
but they can move fast, there's
exceptions but I mean really the
differentiator is the speed and
also the loan size, they're
generally not playing on the
real small end of the spectrum.
JOSH ZEGEN:
I've also found,
I was just going to say
that you know the minimum
interest period that
someone like that demands
is typically a lot longer.
MICHAEL STOLER: For my viewers
explain the traditional
structure of a loan. Let's say
hypothetically the banks really
aren't interested in this
(IND) construction loan or
something, how you would
structure a loan and how
you know the interest
reserves and so on.
JOSH ZEGEN: You know one
example we did a deal in
Williamsburg where someone
bought a piece of property
for thirty five million
dollars we provided
eighteen million dollars
on a land loan at the time
and the borrower started
funding the project out of
cash to get things moving.
Recently they came back to
us for an eighty million dollar
construction loan and we're
providing that, you
know we're far down the line,
plans approved, everything's
been done, they've been moving.
So that's sort of like the
type of deal that we do.
Now, why does someone come
to us for that deal well
traditional banks are really
a pullback in middle market
construction lending and we
found that that's a big you know
opportunity for someone like
ourselves today and just given
the regulatory you
know environment.
MICHAEL STOLER:
Now what do you,
how long of a loan is
it and do you structure
reserving for the interest
and guarantees and other?
JOSH ZEGEN: So in that
particular case we had a partial
guarantee. It was a two year
loan with an extension option
and we are reserving
for part of the interest there.
Obviously they have to
hit specific milestones to
continue having
advancements of funds but
that's, you know that's the way
we structure that commitment.
MICHAEL STOLER: Are you
doing construction also Gregg?
GREGG WINTER: We're,
we rarely do ground up
construction we've
done a couple of them. Much more
typical for us
would be a rehab kind of a loan,
which again plays into the whole
theme of value added properties.
So for us typically the
rate would be between say
nine and a half and
ten and a half percent,
with two points for a one
year interest only loan.
Typically there's a six
month minimum for interest
and we'll hold back
reserves for various
things it could be a
Cap Ex reserve,
it could be an interest
reserve either full or
partial interest reserve
or a tenant buy out
reserve so that we know
there's no guesswork about
knowing that the project
is adequately capitalized.
MICHAEL STOLER: Marc?
MARC MENDELSOHN:
We're very similar,
we'll do more rehab
rather than ground up.
We've done a very similar
loan to what Josh just said
but a
much lower scale,
you know the guy bought
a building for a million
dollars in the Bushwick
area and it's become a
very (IND)
neighborhood, six family,
gut renovating the
property in the four-five
hundred thousand dollar
construction budget and
just the constriction of a
construction loan from a
regular lender to do a
small deal like that with
draws and the reporting
prohibits the timing of it
and their in and out in a
year. So they'll come to us,
we'll put up the, you know the
million dollars,
put two hundred
thousand in reserve.
They need fifty
grand they'll call us,
we just
finished the kitchens,
we just finished the floors
we'll release the fifty,
we'll go down there we'll
look at it. We're more fluid
that way and more
entrepreneurial in that sense.
MICHAEL STOLER: As an
institutional lender
that's not
really your market.
THANH BUI: We actually do
do selectively ground up,
depending on the market
and the product type.
We do value added as well
but as a mezz lender we
definitely build in
an interest reserve.
So the senior lender,
which is typically a bank
in this instance would
leave off at about 60-65%
and we'd take it to maybe
75 or so 80% loan to cost
and obviously once they add the
value that L.T.V. comes down.
But building in an
interest reserve to help
us through kind of
the transition period.
RONNIE LEVINE: You know
I mean you know in that
structure where
mezz is coming into a
constructional loan, I
mean you know where we get
involved and try to help
our client structure these
deals is you know are you
funding all of your mezz
first, or are you going to
fund (IND) with the senior
loan and these are all
kind of the nuances in
structure that
really make a difference.
THANH BUI: Yeah I mean from
your borrowers perspective it's
better to have the mezz
go in or the opposite in a way,
but the banks typically
want the mezz to go in for.
RONNIE LEVINE: Right so
we've been successful in
structuring where the bank
will allow the mezz lender
to fund (IND), which is
you know lowers the cost
of capital to the borrower
on a blended basis.
And I think on more
the specialty finance
construction
deals there's no,
you know there's no set
formula I think every one
of these guys probably
structures there's deals a
little bit differently,
but from the brokerage
perspective what we look
for is you know when you
say a holdback is that
funded at closing and
they're paying interest on
their future draws or are
you funding them
in the future.
GREGG WINTER: Typically,
yeah it's funded at close.
MARC MENDELSOHN: It's funded
into an escrow.
RONNIE LEVINE: Right so
I know that you have the
ability to
potentially fund draws,
you know that's really
where the nuances come in
are you paying interest on
all the loan dollars day one,
are you funding them
over time and you know so
we'll work with the client
to run the math on the
different structures and
figure out you know what
is what's the
best structure.
MICHAEL STOLER: I
hear other emerging
neighborhoods and you know
there are different asset
classes and we were
talking prior to the show
that certain people are
a little worried about
certain asset classes because
they don't, you know like
hospitality is a great asset
class but it's an operating
business. It's you know, it's
not multifamily that people you
have a vacancy of four percent
in the country because of that.
How do you look at
different type of assets
in different worlds, I
mean you know retail is
always you know
you have retail,
you have industrial, you
have the office and so on.
Which asset is your
favorite and which ones
you're, one that you're
most cautious about.
THANH BUI: Well I guess
it depends on what your
strategy is too, if you're
building ground up multi
families right now in the outer
boroughs makes a lot of sense.
It may not make sense
in Arizona for example.
MICHAEL STOLER: I'm talking
more in our local geographics.
THANH BUI: Sure. So multifamily
in the outer boroughs obviously
makes a lot of sense. Clarion
just bought a property in
Williamsburg for
example multifamily.
We have a research group
and our research group
takes a look at the various
property types all over the U.S.
And you know multifamily
if you hear a lot about
overbuilding and such,
it's still actually in
check in most major
markets so that's an asset
class that we
really like a lot.
You don't see a lot
of office construction
clearly in in the
New York market place,
but industrial is also an
asset class that we really
like in the
region as well.
RONNIE LEVINE: I mean
there's clearly the most
liquidity for multi-family,
I mean certainly in this market.
I think the large
construction loan that you
guys are doing it's
a great location,
a great asset but I think
the reason that we're
probably with you
as opposed to more
conventional lenders is
because it's primarily a hotel.
So hospitality is one of
the sectors in the market
that there's not a lot
of liquidity for us.
So I think
that's where you,
you have a great
opportunity to put out a
safe loan and get a
nice rate of return.
MICHAEL STOLER: But as I
just brought up before
hospitality is an
operating businesses,
it's like you know one of
the businesses whenever I
do a show in the
restaurant business I ask
the restaurant owners
which banks lend you money
they said no, the
answer is simple none,
you know because it's you
know it's a very violent
industry, you know too
many of them fail over the year.
Hotels right now it's fine
because business is doing
well, but one of the
biggest negatives to the
hospitality business in
New York and around the
country is Air B&B,
because they are creating
additional rooms and they
are having an effect on
the on the occupancy
and the daily rate.
GREGG WINTER: Well they're
like Amazon to the retail
business, the
same basic thing.
So I mean in our in our
case also we shy away
really from doing
much with hotels,
anything with an operating
business inside and we
really focus on
the mixed use,
the multifamily and also
retail to a lesser degree.
Some of the things we've
done together were retail.
RONNIE LEVINE: Sure, look
I mean in New York when
you have a vacancy in
retail you as opposed to
other markets
in the country,
I mean there's a pretty
good certainty you can peg
within a pretty tight
range what the rent will
be and kind of how quickly
that's going to stay vacant.
MICHAEL STOLER: We're seeing a
large predominance today of
health facilities. I
mean there's blink!
there's you know, Planet
Fitness and all the rest,
how do you look at this or
how have lenders look at
this with regard to that?
Because you know the
business model is very
interesting because
somebody who's paying
twenty-thirty dollars a
month really continue.
And these places operate
because it's my credit card.
Now you also look at it
it's a difficult operating
business have you ever
financed any in the health
facilities or
the luxury gyms?
THANH BUI: We have
not in our buildings.
JOSH ZEGEN: So I mean
we have not necessarily
specific just a gym, but
typically we're really,
when we look at something
like that we really think
about the costs that are being
put in by that gym, what you
know can we use that
for another gym that may go in.
So you know how applicable would
that be if we had to take over.
MICHAEL STOLER: I've
done shows on this,
one of the new emerging
trends in health care is
the you know the City MD,
you know the Urgent Care
centers you know but it
is a new trend it's around
there you know, it's not
proven but you know and
it's a specialty because
they have to build out.
It's more, it's
not only retail,
it's a lot of plumbing
it's a lot of office space
and others have you have
you looked at that type of
market the health care
market and the urgent care?
JOSH ZEGEN: It's typically
a great use because the
hospitals are so backed
up with emergency rooms so
it's a just easier
alternative and it drives
other tenants around that
kind of tenant so I mean
that's a good
trend if anything.
RONNIE LEVINE: You know
it's a viable business
because they're actually
taking pure retail space
in a lot of locations and
they could actually get
into a community facility
designation where there
would be less competition
I mean I've seen them on
my block in you know right
next to banks and you know
on you know we have in
our in the neighborhood on
Third Avenue I mean
there's a few of them.
So they're paying retail
rents where they could be
in community facilities
probably paying less.
MICHAEL STOLER: Here's an
interesting thing and I
know you've been working
on it Ronnie in number of
places, the conversion
of certain types of real
estate which may have been
hospitals in the past I
think Josh
you've done that.
How do you look at the
conversions of these type
of things to
residential today?
JOSH ZEGEN: So I would say
you know no one hospital
kind of is the same.
So a deal we did on Queens
Boulevard happened to been
a great property because
it had lots of exposure,
lots of windows, great
light and air and it made
for a great conversion
given the layout.
So like as a lender I'm
really looking at that and
saying well how well is
this going to transform to
you know a mixed use
property and the value of
that property is
really driven by what,
you know how many
units, what you can do,
how many bedrooms, what
the renovations will look
like and we really think
about it from an owner's
you know perspective when
we're valuing the cost to
complete a
project like that.
MICHAEL STOLER: You know
there's been talk that the
condo market is getting a little
frothy in the New York area.
How, have you any thoughts on
this as a lender on new condos?
GREGG WINTER: I mean
in our case I'd say the
majority of the value
add deals that we do in
Manhattan and most
of them in Brooklyn,
some of them in Queens are
going to be rental buildings.
In some cases the exit
will be condo sales but
where the kinds of loans
that we are doing are not
at the top of the market,
they're not the three
thousand dollar a square
foot types of condos.
MICHAEL STOLER: So I
think you know 26 minutes,
28 minutes you get a lot
of ideas and I think my viewers
have got some good ideas on
what's happening and
alternatives of where to go and
that there's money is out there.
You know there's more
money that's plentiful out
there and I'd
like to thank Thank, Gregg,
Ronnie, Josh and Marc and
I'll see you next week.
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This page was last edited on 21 July 2019, at 05:18